Will Trust
What is a Will Trust?
- A trust created by will (testamentary trust), effective only on death.
- Trustees are appointed by the will and hold property on trust according to the testator’s instructions.
- Used to:
- Provide for minors, vulnerable beneficiaries, or tax planning.
- Control distribution over time rather than outright gifts.
Types of Will Trusts
- Bare/Absolute Trust
- Beneficiary has an immediate, absolute right.
- Trustees simply hold until legal transfer.
- Life Interest (Interest in Possession) Trust
- Life tenant: entitled to income (e.g. spouse).
- Remainderman: gets capital after life tenant’s death.
- Relevant for Inheritance Tax (IHT) treatment.
- Discretionary Trust
- Trustees have discretion over distribution among a class of beneficiaries.
- Flexible, useful for tax planning and changing circumstances.
- Trusts for Minors
- Often arise under intestacy or wills.
- Property held until beneficiary reaches 18 (or later if will specifies).
- Formalities & Validity
Will must be valid (s.9 Wills Act 1837: in writing, signed by testator, two witnesses).
Trust must comply with certainty principles:
Intention (clear intent to create a trust).
Subject matter (property identified).
Objects (beneficiaries identified or ascertainable).
- Administration & Trustee Duties
Trustees hold property as per will instructions.
Duties: act in best interests, even-handed between beneficiaries, invest prudently (Trustee Act 2000).
Executors/trustees may be the same people, but roles differ:
Executor: administers estate.
Trustee: manages trust property for beneficiaries.
- Taxation (Essential for SQE2)
Inheritance Tax (IHT):
Transfers into trusts via will can trigger charges depending on type.
Nil-rate band & spouse exemption apply.
Income Tax: trust income taxed depending on type.
Capital Gains Tax (CGT): disposals by trustees can attract CGT.
- Common Exam Scenarios
Client wants to provide for spouse but protect capital for children → Life Interest Trust.
Client worried about young children’s inheritance → Will trust until 18/21/25.
Client with complex family dynamics (e.g. second marriages, stepchildren) → Discretionary trust or flexible life interest trust.
Advising on intestacy: when minors inherit, statutory trusts arise.
- Probate Interaction
Executors prove will and collect estate.
Executors transfer trust assets to trustees (if different people).
If same person, role changes from executor → trustee once estate administration complete.
- How to Present in SQE2
When advising a client in an SQE2 station:
Spot the will trust issue (e.g. “my children are minors”).
Explain simply:
“We can include a clause in your will to hold money in trust until your children are old enough.”
Show awareness of tax (don’t deep dive, but flag key implications).
Identify practical steps (appoint trustees, consider age contingencies, include substitute beneficiaries).
Trust fund
Remainderman
Types of remainderman
Vested remainderman
If the remainderman has a vested remainder (meaning they were unconditionally entitled to the remainder once the life tenant dies),
Contingent remainderman
If the remainder was contingent on some condition (e.g., “to John if he survives the life tenant” or “to John’s children if they survive the life tenant”), and the remainderman dies before the condition is met:
The interest fails.
The property passes according to the alternate terms of the trust or to a different remainder beneficiary.
No, it would not pass to the estate — the condition wasn’t met.
Discretionary trust
A discretionary trust in the UK is a type of trust where the trustees have full discretion over how and when to distribute income and capital to the beneficiaries. This means beneficiaries do not have a fixed entitlement to the trust’s assets—they only benefit if the trustees decide to distribute to them.
Here’s a breakdown of how it works and key elements:
Key Features of a Discretionary Trust
Feature Description
Trustees Manage the trust, control distributions, and make decisions about how the trust is run.
Settlor The person who sets up the trust and transfers assets into it.
Beneficiaries Individuals or groups who may benefit from the trust, but have no automatic right to income or capital.
Letter of Wishes Although not legally binding, the settlor can provide guidance to trustees about how they want the trust to be used.
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🧾 Taxation of Discretionary Trusts (UK)
Discretionary trusts have a unique tax treatment in the UK:
- Income Tax
• Trustees pay income tax on trust income:
• 45% on most income.
• 39.35% on dividend income.
• A £1,000 standard rate band may be available (taxed at lower rates: 20% for interest, 8.75% for dividends). - Capital Gains Tax (CGT)
• Trustees have an annual CGT exemption, but it’s half the personal allowance (e.g., £3,000 for 2024–25).
• Gains above that are taxed at 20% (or 28% for residential property). - Inheritance Tax (IHT)
• Entry charge: 20% IHT if assets exceed the nil-rate band (£325,000).
• 10-year charge: Up to 6% every 10 years on the value of trust assets.
• Exit charges: When capital leaves the trust, a proportion of the 10-year charge may apply.
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📘 Common Uses
• Family wealth planning: e.g., for children or vulnerable beneficiaries.
• Asset protection: from divorce, bankruptcy, or imprudent spending.
• Flexibility: if future needs are uncertain.
• Tax planning: though HMRC scrutinizes aggressive strategies.
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📌 Example
A parent sets up a discretionary trust with £500,000 for their children and future grandchildren. Trustees can decide to pay for education, help with home purchases, or delay distributions if a beneficiary is irresponsible. The children don’t “own” the money unless trustees grant it.
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If you’re considering setting up or are involved in a discretionary trust, it’s wise to consult a solicitor or tax adviser, as UK trust law and tax can be complex.
Would you like a template, example, or further explanation on any specific area (e.g., taxation, setting one up, or trust deed structure)?
Breach of trust
Definition
A breach of trust is any act (or failure to act) by a trustee that is contrary to the terms of the trust or in violation of their fiduciary duties.
Types
- Deliberate (e.g. misappropriating assets),
- Negligent (e.g. failing to protect or invest trust assets properly), or
- Innocent (e.g. misunderstanding trust terms—but still liable).
Common Examples of Breach of Trust
1. Misapplying Trust Property
- Giving trust assets to someone not entitled under the trust (e.g. a non-beneficiary),
- Using funds for unauthorised purposes.
Example: A trustee pays £10,000 from the trust to a friend not named in the will.
2. Failing to Act Prudently
- Making poor investments or failing to diversify assets,
- Leaving money uninvested when the trust terms require growth or income.
Example: A trustee keeps all funds in a non-interest-bearing account for 5 years.
- ⚖️ Self-Dealing / Conflict of Interest
Buying trust property for themselves,
Entering contracts with the trust in a personal capacity.
📘 Example: A trustee sells trust land to their own company without full disclosure.
- 🕵️ Acting Dishonestly or Fraudulently
Misappropriating or stealing trust assets,
Concealing information or falsifying accounts.
📘 Example: A trustee creates fake invoices to siphon money from the trust.
- 📚 Failing to Follow the Trust Terms
Ignoring express instructions in the will or trust deed,
Distributing income or capital in the wrong proportions or to the wrong people.
📘 Example: A trustee distributes trust capital when the deed permits only income distribution.
- 🕰️ Failing to Act (Inaction or Delay)
Failing to make distributions when required,
Ignoring beneficiary requests for information or failing to maintain records.
📘 Example: A trustee does nothing for years and fails to safeguard assets, causing loss.
- 🫂 Acting with Bias or Partiality
Favouring one beneficiary over others without justification,
Refusing to consider all relevant factors in discretionary trusts.
⚖️ Legal Basis
Trustees are bound by both:
The terms of the trust instrument (e.g. a will or trust deed),
And general trustee duties under:
Trustee Act 2000 (e.g. investment duties),
Trustee Act 1925,
Case law (e.g. Cowan v Scargill [1985] Ch 270, Boardman v Phipps [1967]).
Defence against claim for breach of trust
Remedies for breach of trust
1. Compensation for Loss (Equitable Compensation)
- The most common remedy. The trustee is ordered to make good any loss caused by the breach.
- Based on restoring the trust fund to the position it would have been in if the breach had not occurred.
- Does not require proof of dishonesty—even innocent mistakes can result in liability.
- Case: Target Holdings v Redferns [1996] AC 421
Trustee was liable to compensate the beneficiary for actual loss caused by breach.
2. Account of the Trust / Accounting for Profits
The trustee must account for their handling of the trust property, and may be required to:
- Return unauthorised gains (e.g. profits from misuse of trust property),
- Provide a full inventory of how trust property was managed or distributed.
- Case: Boardman v Phipps [1967] 2 AC 46
Trustees made a profit using trust information—had to account for profits, even though they acted in good faith.
3. Tracing and Recovery
If the trustee misapplied or transferred trust property, the beneficiaries can:
- Trace the asset into its new form or location,
- Seek to recover it from the current holder (unless it’s a bona fide purchaser for value without notice),
- Claim the asset itself (proprietary remedy), or
- Impose a constructive trust or equitable lien.
- Case: Foskett v McKeown [2001] AC 102
Beneficiaries successfully traced misapplied funds into life insurance proceeds.
4. Rescission of Improper Transactions
If a trustee entered into an unauthorised or conflicted transaction (e.g. self-dealing), the beneficiaries can ask the court to:
- Set aside (rescind) the transaction,
- Restore the trust to its original position.
- This often arises with fiduciary breaches, especially where a trustee has conflicted interests.
❌ 5. Injunctions or Freezing Orders
Courts may issue:
An injunction to stop a trustee from taking or continuing wrongful actions.
A freezing order (Mareva injunction) to prevent trust property being moved or dissipated while a claim is underway.
🚫 6. Removal or Suspension of Trustee
If a trustee seriously breaches their duties (or is unfit), beneficiaries can:
Apply to court for their removal under section 41 Trustee Act 1925, or
Seek suspension or replacement if allowed in the trust deed.
📘 Case: Letterstedt v Broers (1884) 9 App Cas 371
Trustee removed for failure to act impartially and competently.
🤝 7. Indemnity or Contribution from Co-Trustees
If multiple trustees were involved:
A trustee who is less at fault may seek a contribution from a more culpable co-trustee.
Innocent trustees can sometimes claim indemnity from a dishonest or negligent co-trustee.
Trust validity
Step 1: Check if the will itself is valid (s.9 Wills Act 1837).
Step 2: Apply Knight v Knight:
Intention: Are the words imperative or precatory?
Subject matter: Is the trust property clearly defined?
Objects: Can we identify who benefits?
Wrongs against a trust
A. Breach of Trust (by trustees or constructive trustees)
This is when a trustee (or anyone holding property on trust, e.g. solicitors under an undertaking) misuses or mishandles trust property. Breach of trust can take many forms:
- Misapplication of property – using trust funds for an unauthorised purpose.
- Failure to safeguard assets – not protecting property (e.g., failing to register security, insure, or invest).
- Unauthorised investment – investing in assets not permitted by the trust instrument or law.
- Self-dealing / conflict of interest – trustee benefits personally from trust property.
- Improper distribution – paying out to the wrong person or at the wrong time.
- Failure to act impartially – unfairly favouring one beneficiary over another.
- Unauthorised delegation – handing over control of trust property to others without authority.
- Failure to account / provide information – not keeping proper records or refusing to inform beneficiaries.
- Exceeding powers – doing something beyond the trustee’s legal powers (e.g., selling property when only leasing is allowed).
- Fraudulent breach of trust – deliberate misappropriation or dishonesty by a trustee.
Key point: Only trustees (including constructive trustees) can commit breach of trust.
B. Third-Party Liability (outsiders to the trust)
Even if someone is not a trustee, equity can make them liable if they get involved in a breach of trust. The main doctrines are:
- Dishonest assistance – helping a trustee commit a breach of trust, with dishonesty (e.g., a solicitor facilitating misuse of trust funds).
- Knowing receipt – receiving trust property that has been misapplied, where the recipient knew (or ought to have known) it came from a breach of trust.
- Unconscionable receipt / liability in equity – a broader category where receipt or involvement with misapplied trust assets is unconscionable even if not strictly dishonest.
caselaw giving beneficiary’s right to request information about trust
The leading case law on beneficiaries’ right to information about a trust is:
Schmidt v Rosewood Trust Ltd [2003] UKPC 26
The Privy Council held that a beneficiary (even a discretionary beneficiary) does not have an absolute right to trust documents.
Instead, the court has an inherent jurisdiction to supervise trusts and can order trustees to disclose information if it is in the interests of the proper administration of the trust.
The court emphasised that disclosure is a matter of judicial discretion, balancing:
the interests of the beneficiaries,
the confidentiality of the trustees, and
the proper administration of the trust.
Earlier authority
Re Londonderry’s Settlement [1965] Ch 918 – traditionally held that beneficiaries have a right to see trust documents that relate to the trust’s administration (but not, for example, trustees’ reasons for exercising discretion).
However, Londonderry has been softened by Schmidt v Rosewood, which gave courts a broader, more flexible supervisory power.
In summary
Beneficiaries do have a right to seek information, but it’s not automatic.
The modern position from Schmidt v Rosewood: disclosure depends on the court’s discretion, exercised to ensure proper trust administration.
**The scope of information **includes trust accounts and documents detailing the investments and financial performance of the trust.
Diversification of trust investment
Under the Trustee Act 2000, trustees must consider whether it is appropriate to diversify the trust’s investments.
This means they need to evaluate if spreading the investments across different assets would benefit the trust.
However, they are not strictly required to diversify if, after careful consideration, they decide that it is not suitable for the trust’s specific circumstances. The trustees have a duty to act in the best financial interests of the beneficiaries, and they must periodically review the investments to ensure they are still appropriate.
Termination of trust - Rule in Saunders v Vautier
The rule in Saunders v Vautier (1841) is a key principle in trust law. It allows beneficiaries of a trust to demand that the trust be brought to an end early, even if this goes against the settlor’s intention, provided certain conditions are met.
The Rule
If:
All beneficiaries are of full age (i.e., adults with legal capacity),
All beneficiaries are absolutely entitled to the trust property (no contingent, future, or discretionary interests remain), and
They all agree unanimously,
then the beneficiaries may collectively require the trustees to:
Terminate the trust, and
Transfer the trust property to them (or deal with it as they direct).
Rationale
The idea is that if the beneficiaries are the only people with an interest in the trust property, and they are legally capable of dealing with it, there is no reason to force them to keep the trust running just because the settlor wished it. In effect, beneficiaries’ rights trump the settlor’s intentions once the trust is constituted.
Example
Suppose a settlor creates a trust for A (aged 25) for life, remainder to B (aged 27). If A and B both agree, they can collapse the trust under the rule in Saunders v Vautier and have the trust property transferred to them outright.
But if one beneficiary is under 18 or if future beneficiaries are not yet born or identified, the rule cannot apply.
Contrast: When It Wouldn’t Apply
If the trust were:
“To A for life, then to A’s children,”
and A currently has no children, or the class of children could still expand,
then the remainder interest is contingent (unascertained beneficiaries exist or may exist).
In that case, the Saunders v Vautier rule cannot be applied.
Investment dispute
Trustee investing in related person
Trust asset managed by person related to trustee
Trustee’s power on investment
legislation
case law
Trustee’s power on delegation of investment powers
The Rule on Advancement
The Rule on Advancement
Under the statutory power of advancement
Trustee Act 1925, s.32, as amended, trustees have discretion to apply part (or sometimes all) of the capital of a beneficiary’s vested or presumptive share for that beneficiary’s advancement or benefit before they become absolutely entitled.
s.32(1)(a) — Extent of power: used to limit advancements to half the presumptive share (that cap has been removed by the Inheritance and Trustees’ Powers Act 2014, s.9).
s.32(1)(b) — Accounting requirement: any money advanced must be brought into account as part of the beneficiary’s share.
s.32(1)(c) — Consent requirement: “no such advancement shall be made without the consent in writing of the person entitled to the prior interest.”
Useful trick
Advancement = 1925
Investment = 2000
Key sections of Trustees Act 2000
s.1 – Duty of care
Trustees must exercise reasonable care and skill. Professionals (e.g. solicitors, accountants) are held to a higher standard.
s.3 – General power of investment
Trustees may make any investment as if they owned the trust assets outright (subject to restrictions in the trust deed).
s.4 – Standard investment criteria
Trustees must consider:
Suitability of the investment; and
Need for diversification (where appropriate).
s.5 – Duty to obtain and consider advice
Trustees must obtain proper advice on investments from a qualified person unless it is unnecessary or inappropriate.
s.8 – Power to acquire land
Trustees can acquire freehold or leasehold land in the UK for investment, occupation by a beneficiary, or other trust purposes.
s.11 – Power to employ agents
Trustees may delegate functions (including investment management) to agents, except “core” trustee decisions such as distributions or appointment of new trustees.
s.12 – Persons who may act as agents
Sets out who may be appointed as agents. For investment, this usually means an FCA-authorised investment professional.
s.13 – Terms of agency
Trustees must agree written terms with the agent, defining their authority, duties, and reporting obligations.
s.14 – Review of agents etc.
Trustees must keep the agent’s performance under review and take action if they are unsuitable or underperforming.
s.15 – Asset management: policy statement
When delegating investment management, trustees must provide a written policy statement setting out objectives, risk approach, and guidelines.
s.22 – Review of agent’s actions
Trustees must review how agents are performing, and whether to revoke their appointment or change the terms.
Summary
Trustees in the UK have a very wide statutory power of investment (s.3 TA 2000), but they are constrained by duties of:
- Care and skill (s.1)
- Suitability and diversification (s.4)
- Obtaining advice (s.5)
- Supervision when delegating (ss.11–15 & s.22)
s.1, s.3–5, s.8 → Powers and duties when investing directly.
ss.11–15, s.22 → Powers and duties when delegating investment/asset management.
Delegation of Investment (ss.11–15 TA 2000)
Trustees can delegate investment functions to an agent (usually a professional investment manager).
- Must provide a written policy statement (s.15).
- Must review performance (s.22).
- Delegation does not remove the trustee’s duty of oversight.
Removing trustee
Legal Position
- Trustees must act honestly, in good faith, and for the benefit of beneficiaries.
- If a trustee fails in these duties, they can be removed.
3 main ways to remove a trustee:
1. Under the Trust Deed – Some trusts contain an express clause allowing removal. (Check this first)
2. Under the Trustee Act 1925
- Section 36: Allows replacement where a trustee is unfit, incapable, or refuses to act.
- Section 41: The court can remove and appoint trustees where it is expedient to do so.
3. Court’s Inherent Jurisdiction
The court can remove a trustee if their conduct makes it impossible for the trust to be administered properly (Letterstedt v Broers).
Section 36 TA 1925 – No court application required (in most cases)
This is a self-help power:
- The remaining trustees (or the personal representatives of the last surviving trustee) can appoint a new trustee in writing — without going to court.
It applies where:
- The trustee has died, is unfit, incapable, refuses to act, or has been absent from the UK for 12+ months.
- The other trustees agree and are willing to act.
However, in practice, disputes often arise over whether someone is truly “unfit” or “incapable”.
If there’s disagreement, you may still end up needing a court order — but not because s.36 requires it; rather, because of the factual dispute.
Section 41 TA 1925 – Always requires a court order
This is a judicial power:
The court may make an order to appoint or remove trustees “whenever it is expedient to do so” and it is inexpedient, difficult or impracticable to do so without the court’s assistance.
Examples:
- Trustees disagree about removal.
- The trust deed doesn’t give a clear removal power.
- The situation doesn’t neatly fit s.36 grounds.
- There’s evidence of misconduct, breach of trust, or deadlock.
What Is the Court’s Inherent Jurisdiction?
- Even before the Trustee Act 1925, the Court of Chancery (Equity) had an inherent jurisdiction to remove trustees.
- That power still exists today, and it’s separate from the statutory powers under s.36 and s.41 TA 1925.
- It allows the court to remove a trustee where it is necessary for the proper administration of the trust, even if none of the statutory grounds strictly apply.
Legal Basis and Principle
- Letterstedt v Broers (1884) 9 App Cas 371
- “The main guide must be the welfare of the beneficiaries and the competent administration of the trust.”
This means:
- The court’s focus is not to punish the trustee,
- But to ensure the trust can be properly and efficiently managed.
- So, even if there is no actual misconduct, the court can remove a trustee if their presence would make the trust’s administration impossible or dysfunctional.
- The inherent power is broader than s.41 — it can be used even if s.41 doesn’t strictly apply, for example, when misconduct or loss of confidence destroys the working relationship.
- In practice, applications often cite both s.41 and the court’s inherent jurisdiction as alternative basis.
More on Court’s inherent power to remove trustee
Common Situations Where Administration Is Prejudiced
Situation 1
- Breach of trust or dishonesty
Why It Prejudices Administration 1
- Trustee has misused funds, failed to account, or acted fraudulently — beneficiaries cannot trust them.
Relevant Case / Example 1
- Letterstedt v Broers (1884) — dishonesty and hostility justified removal.
- Persistent failure to cooperate with co-trustees Trust decisions require joint action. If one trustee refuses to sign documents or communicate, administration stalls. Re Wrightson (1908) — conflict among trustees made it impossible to administer.
- Hostility or loss of confidence affecting administration Personal animosity between trustee and beneficiaries prevents decisions or communication about trust matters. Letterstedt v Broers — hostility plus loss of confidence justified removal.
- Conflict of interest Trustee’s personal interests clash with duties under the trust (e.g. trustee also a creditor of the trust). Re Consiglio Trusts (1973) — conflict led to removal.
- Mental or physical incapacity Trustee unable to perform duties due to illness or incapacity, leaving administration ineffective. Typically dealt with under s.36, but if disputed, the court may use its inherent power.
- Persistent neglect or incompetence Failing to keep accounts, pay taxes, or invest prudently prejudices administration even if not dishonest. Thomas & Agnes Carvel Foundation v Carvel [2008] — incompetence can justify removal.
- Breakdown of trust between co-trustees Trustees quarrel or distrust one another to the point where no effective decisions can be made. Re Wrightson (1908) — mutual hostility prevented trust management.
- Beneficiaries’ welfare at risk Trustee’s behaviour causes significant distress, expense, or delay to beneficiaries receiving their entitlements. Letterstedt v Broers — the beneficiaries’ welfare is the central test.
